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Did the fed raise interest rates before elections?

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  • Alexander Dentler

    (Centro de Investigacion y Docencia Economicas)

Abstract

The literature on political business cycles focuses on elected incumbents and neglects the incentives of appointed officials. We present evidence of rate hikes before elections when the chair of the US Federal Reserve is from a different party than the incumbent president. This finding contrasts with the traditional belief that an inappropriate policy-rate bias implies a more expansive pre-election policy stance. We also find weak evidence that rates are lowered when the chair and president are from the same party. The evidence that ideological preferences of the chair matter remains even when we control for career motives.

Suggested Citation

  • Alexander Dentler, 2019. "Did the fed raise interest rates before elections?," Public Choice, Springer, vol. 181(3), pages 239-273, December.
    • Handle: RePEc:kap:pubcho:v:181:y:2019:i:3:d:10.1007_s11127-019-00653-z
    DOI: 10.1007/s11127-019-00653-z
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    More about this item

    Keywords

    Political business cycle; Political monetary cycle; Central bank independence; Political appointments; Taylor rule;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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